NEWS ANALYSIS: California in the Rear View Mirror: Manhattan Institute Study Provides a More Comprehensive Look at Exodus from Golden State

On Dec. 11, I did a story about the population exodus from high tax states like California and New York to more business friendly, lower tax ones like Texas and Florida. Link: http://www.huntingtonnews.net/51370.

The story was based on the Census Bureau's mover survey and left me wondering if there was more to this major change in population that began a decade or so ago.

When I heard that the Manhattan Institute had done a similar survey, "The Great California Exodus: A Closer Look" (link:http://www.manhattan-institute.org/html/cr_71.htm#.UNh3uY6EzzJ I discovered that yes, there was more to the story. The Manhattan Institute story, by Tom Gray and Robert Scardamalia, was based on more than just Census Data, although that was essential.

From the report's Executive Summary:

For decades after World War II, California was a destination for Americans in search of a better life. In many people’s minds, it was the state with more jobs, more space, more sunlight, and more opportunity. They voted with their feet, and California grew spectacularly (its population increased by 137 percent between 1960 and 2010). However, this golden age of migration into the state is over. For the past two decades, California has been sending more people to other American states than it receives from them. Since 1990, the state has lost nearly 3.4 million residents through this migration.

This study describes the great ongoing California exodus, using data from the Census, the Internal Revenue Service, the state’s Department of Finance, the Bureau of Labor Statistics, the Federal Housing Finance Agency, and other sources. We map in detail where in California the migrants come from, and where they go when they leave the state. We then analyze the data to determine the likely causes of California’s decline and the lessons that its decline holds for other states.

The data show a pattern of movement over the past decade from California mainly to states in the western and southern U.S.: Texas, Nevada, and Arizona, in that order, are the top magnet states. Oregon, Washington, Colorado, Idaho, and Utah follow. Rounding out the top ten are two southern states: Georgia and South Carolina.

A finer-grained regional analysis reveals that the main current of migration out of California in the past decade has flowed eastward across the Colorado River, reversing the storied passages of the Dust Bowl era. Southern California had about 55 percent of the state’s population in 2000 but accounted for about 65 percent of the net out-migration in the decade that followed. More than 70 percent of the state’s net migration to Texas came from California’s south.

What has caused California’s transformation from a “pull in” to a “push out” state? The data have revealed several crucial drivers. One is chronic economic adversity (in most years, California unemployment is above the national average). Another is density: the Los Angeles and Orange County region now has a population density of 6,999.3 per square mile—well ahead of New York or Chicago. Dense coastal areas are a source of internal migration, as people seek more space in California’s interior, as well as migration to other states. A third factor is state and local governments’ constant fiscal instability, which sends at least two discouraging messages to businesses and individuals. One is that they cannot count on state and local governments to provide essential services—much less, tax breaks or other incentives. Second, chronically out-of-balance budgets can be seen as tax hikes waiting to happen.

The data also reveal the motives that drive individuals and businesses to leave California. One of these, of course, is work. States with low unemployment rates, such as Texas, are drawing people from California, whose rate is above the national average. Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

Population change, along with the migration patterns that shape it, are important indicators of fiscal and political health. Migration choices reveal an important truth: some states understand how to get richer, while others seem to have lost the touch. California is a state in the latter group, but it can be put back on track. All it takes is the political will.

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One question that wasn't completely answered in the Census Bureau report cited in my Dec. 11 story: Why Texas? Gray and Scardamalia note in the report that "at the turn of the [21st] century, Texas lagged behind Nevada, Arizona, and Oregon as a destination for Californians." By 2010, Texas had moved to the top of the list: "Why did that happen? Unlike nearby states, Texas is not an obvious destination for Californian migrants," they wrote.

"Most of its population centers are some 1,000 miles away from the big California metro areas.

"What it has had, for the past few years, is an economy that, compared with California’s, is booming. This is a quite recent development. In fact, California and Texas had comparable unemployment rates through 2006 (in the summer and fall of that year, both rates bottomed, at just under 5 percent). But starting in 2007—well before the recession—California’s jobless rate started climbing and eventually left Texas far behind. By July 2010, the gap was 4.3 percentage points: 8.1 percent for Texas and 12.4 percent for California. (Recent data shows California's November jobless rate in the single digits, at 9.8 percent, but the comparable number for Texas is 6.2 percent). It is not surprising, then, that Texas kept pulling Californians by the tens of thousands as the decade waned, while nearer destination states saw the earlier wave of Californians slow to a trickle.

"Texas is not the only east-of-the-divide state to attract more Californians as the decade wore on. Its smaller neighbor Oklahoma was a minor target state in 2000–01, with net migration from California totaling only 775. Ten years later, it was the sixth-most popular target. It netted 2,152 from California in 2009–10, amid the sluggish migration of the recession. Oklahoma’s job market was stronger than California’s throughout the decade, but the jobless gap between the two states was much wider in 2010 (5.5 percent) than it had been ten years earlier (1.9 percent).

About the Report's Authors

TOM GRAY is an award-winning editor, writer, and communications consultant whose work has covered a wide range of fields, including investor relations, personal finance, health care, engineering, leading-edge scientific research, and local, state, and national politics. In a career spanning four decades, he has written for publications such as the Los Angeles Times, City Journal, and Investor’s Business Daily (where he also served as senior editor), and has authored three books on online investing published by John Wiley & Sons. As editorial-page editor of the Los Angeles Daily News, Gray won a number of awards for writing and editing including first place awards for editorial writing from the California Newspaper Publishers Association and the Inland Daily Press Association. He also has provided marketing and communications services for business and not-for-profit clients including Deloitte & Touche, ValueOptions Inc., the Kavli Foundation, the Synthetic Biology Institute at the University of California, Berkeley, and the University of California, Santa Barbara. A graduate with distinction from Stanford University, Gray also has master’s degrees in English and business administration. He lives in Cambria, California.

ROBERT SCARDAMALIA is president of RLS Demographics, Inc., a firm specializing in the use and analysis of economic and demographic data for private and public applications, and a data consultant for the Manhattan Institute’s Empire Center for New York State Policy. He was formerly director of the Center for Research and Information Analysis in the New York State Department of Economic Development and served as chief demographer of the State of New York and director of the State Data Center. Scardamalia is a professional demographer and has more than 30 years of experience using Census and related data for marketing, business attraction, and public sector program management. He holds a bachelor’s degree in sociology from Penn State University and a master’s degree in demography from Georgetown University.